You Contribute Too Little Because You Don’t Update Contribution Amounts
It’s fine to set your retirement savings at what you can afford today. But don’t forget to adjust it in coming years, or you likely won’t increase your retirement savings as much as you should, said Van Sant.
For example, if you’re just starting out and can only afford to save 2 percent of your salary, that’s better than saving nothing, especially if your company matches your 401k contributions. However, as you start earning more, increase the percentage of the salary you save to grow the nest egg more rapidly.
“Your contributions earlier on in a career tend to be worth more because there are more years that are in the retirement plan,” said Van Sant. “If you can give yourself a retirement raise earlier on — if it’s doable with your budget — it tends to more valuable over the long term.”
In addition, people who stick with the same percentage from the day they set their retirement contribution often need to substantially increase retirement contribution rates, said Van Sant. “That can be a shock to their budget,” he said.
Instead of setting it and forgetting, look at a plan every one to two years. That way, “it won’t be as challenging to meet long-term goals,” he said.